Tax Shenanigans

October 22, 1991

Partisan jockeying for political advantage is approaching high season as the recession persists and the 1992 election year draws nearer. Suddenly, the concern of both parties for the great American middle class (whence most votes are cast) is downright touching. And the deficit be damned.

Senate Finance Committee chairman Lloyd Bentsen, the immediate past Democratic vice presidential candidate, came up with a plan over the weekend for middle-class tax breaks to be paid for by cuts in defense spending. The Republican White House fervently responded that it, too, would never, ever overlook the noble middle class.

There are, of course, some catches in all this.

Take the Bentsen plan. It would provide a $300 tax credit for all children under the age of 18 and reinstate tax deferral on incomes of up to $2,000 a year on all Individual Retirement Accounts (IRAs). To pay for this $72 billion loss of revenue, Senator Bentsen would cut the Pentagon budget 5 percent annually for the next five years. But, alas, the tax breaks would begin Jan. 1 and the spending cuts next October. By our calculations, the nine-month time gap would add $54 billion to the deficit.

Enter the White House, which remains committed to a cut in the tax rate on capital gains on the debatable premise that this would increase rather than decrease revenues. If the administration now goes on to suggest that this alleged bonanza to the Treasury could be used, in part, to offset tax breaks for the big middle class, pity the deficit.

A little background is in order. Messrs. Bentsen and Bush, both Texans, have long been skeptical about the 1986 tax reform measure that got rid of a lot of special tax breaks as a trade-off for reductions in income tax rates. So it would be logical for both men to look benignly on capital gains cuts, IRA enlargements and other deviations from the concept of treating all income alike.

Another Texan, GOP Sen. Phil Gramm, may have given the game away when he said the Bentsen proposal "may be the opportunity we're looking for." "This was the wink and the smile," he added, "There's plenty to do in the romance."

The wallflower in this drama is Rep. Dan Rostenkowski, D-Ill., chairman of the House Ways and Means Committee and a devotee of the 1986 tax reforms and last year's deficit-fighting budget agreement. He knows how much his party wants to cut taxes for the middle class and/or increase domestic spending, especially by taxing the rich. He knows, too, how transfixed are the Republicans by tax stimulants for the economy. But he has an annoying tendency to look at the nation's fiscal position -- not just at his party's election prospects. And, as a result, he is resisting hasty action.

What will happen on taxes before election day is anybody's guess. Our only fearless prediction is that very few politicians will go to the country chanting, "No more tax cuts."